Stocks Hit A Six-Month High

/ Percension Wealth Advisors, LLC/

I saw something for the first time the other morning.

Before walking into the office I decided to grab a coffee at the Starbucks one block down from our building. There was only one problem...

The Starbucks was gone.

I was stunned to see the trademark green and white decor replaced with boarded-up windows. I cannot remember a Starbucks store closing, although they obviously have. As you could expect, there are two other Starbucks locations that are equidistant from our office, so all was good. But still, I was surprised.

I find this ironic considering that consumer confidence is back to levels not seen since the 1990s. I am sure the store closure is more of a one-off thing, but nonetheless found it pretty funny considering you always see new Starbucks locations popping up, not shutting down. After all, there are more than 28,000 Starbucks shops worldwide.

While we're talking retail, Amazon "Prime Day" starts today. There should be a frenzy of buying as Amazon unveils massive discounts over the next week.

In The Market...

The S&P 500 gained +1.5% this past week. Let's look under the hood:

(price data via stockcharts.com)

Eight of the 10 stock sectors were higher, with 7 of them rising more than +1.0% on the week. This was the second-straight weekly gain for the S&P 500, which finished the week at its highest close since Jan 31st. The index is now just 2.5% below its all-time high set back in January, as shown here:

(chart created in stockcharts.com)

The edge goes to the market moving higher in the long-term. But as I have said for weeks, while I suspect that the S&P will run back up to its previous January high, it is likely to be met with a wave of selling when it does. I would be pleasantly surprised if stocks burst through that previous high and take off much higher without resistance from sellers. I believe it will take a few weeks for that to shake out before the long-term rally actually can resume.

A number of you have asked me about individual stocks in the past year. We do buy individual stocks for certain client accounts, so I want to share some analysis around how we evaluate stocks. This past week provided a good example, as we purchased Activision Blizzard (ATVI) for those accounts that own individual stocks.

ATVI meets many of the criteria that we seek before buying a stock:

  1. The Technology sector that it resides in is performing well. We prefer to buy stocks in sectors where peer companies are performing well too.
  2. In terms of its price trend, ATVI looks good on all 3 timeframes we analyze - Monthly, Weekly, Daily. This gives us confidence that the long-term trend will continue rising.
  3. ATVI meets most of the statistical criteria we care about. For example, the price is above its 200-day moving average as well as its 21-day moving average. Also, Relative Strength (RSI) is building momentum.

The one thing that jumps out about ATVI right now is the fact that it just logged a new record high, eclipsing the price it hit back in both March and June, as highlighted here:

(chart created in stockcharts.com)

These kind of price patterns - where the price keeps bumping up against a particular level without surpassing it -- often results in a big rally that zooms past it. This is what we are betting on here with Activision. New price highs are bullish. It is exactly what we want to see. It certainly is no guarantee, but I believe based on our analysis that it will rally. We will now wait and see if that is the case.

In Our Portfolios...

What's New With Us?

I have a question for everyone... Would you be interested in hearing from us quarterly by webinar? The intent of a webinar would be to:

  • Quickly recap the prior quarter in the market
  • Look ahead to the upcoming quarter
  • Discuss what we own and why
  • Provide timely financial planning guidance (e.g. tax-planning)
  • Answer your questions

We would try to keep the webinar to within 45 minutes, since I know most of you are very busy. If you cannot attend it live we would make the recording available afterward so you can listen at your leisure.

I am interested to hear your feedback before making any decisions. Let me know.

Have a great week,

Brian E. Betz, CFP®
Principal

Seattle City Council Is Playing With (Amazon) Fire

/ Percension Wealth Advisors, LLC/

For some companies, the cost of hiring is going up in Seattle.

The Seattle City Council, by way of a 5-4 vote, approved a "Head Tax" that would charge Seattle companies that earn more than $20 million each year a tax of $500 for every worker they employ. This would generate $75 million in yearly revenue for the city. Of that, $50 million would go toward the construction of "affordable housing", $20 million would go toward emergency shelters to improve the rampant homelessness problem and $5 million would go toward administrative costs.

Critics accuse the tax of being punitive on large companies like Amazon that employ thousands of people. Amazon has protested the tax by halting development on a particular downtown real estate project.

Interestingly, Mayor Jenny Durkan opposed the Head Tax in its original form. She prefers to cut the tax in half to $250 per-employee, but City Council quickly rejected that. The existing proposal can bypass a mayor's veto if it receives 6 votes (one more than the initial vote).

The City Council is playing with fire. The nerve its members have to push Amazon's buttons is pretty stunning. If you compare the South Lake Union area 10 years ago to what it is today you would think it was a different city altogether if not for the Space Needle. That is all due to Amazon.

I have many thoughts on the housing market here/around Seattle, but that is for another time. Regarding homelessness, instead of arbitrarily levying a tax why not work with Amazon, Starbucks, Zillow, etc. to create a plan and obtain funding?

This leads to the main issue I have with it, which is the lack of detail. When there is already a general distrust in how government will use its money, it is especially surprising to target its largest generators of economic growth without a coherent plan. The 500 companies that will be affected may think twice about where they hire in the future.

If Amazon were to scale back development or move its operations, how would that hurt businesses that have benefited from its presence? Construction companies, home contractors and other industries that touch commercial or residential real estate would be adversely impacted.

The City Council is due to vote soon to see if it can collect the 2/3 vote needed to overcome a mayoral veto and enact the Head Tax in its current form.

In The Market...

The S&P 500 gained +2.6% this past week. Let's look under the hood:

(price data via stockcharts.com)

No doubt last week was solid. Nearly every stock sector was positive and the bond market even finished in the green. The two sectors we have liked most -- Technology and Energy -- led the way, rising nearly +4.0% apiece on the week.

Looking more broadly at the entire market as a whole, the S&P 500 has broken free above its recent downtrend, as shown here:

(chart created in stockcharts.com)

Notice how the price of the S&P index broke above the falling trend line (in pink). This is encouraging but not necessarily a guarantee that stock prices are off to the races. The index remains roughly -4.5% below its all-time high. I could see the rally persisting up until it starts to press against that high, at which point prices will likely hit some headwinds.

Coming into this week, Tech continues to look the best. We added a Tech sector fund to many accounts last week. We are looking to add either Energy or Consumer Discretionary sector funds in the coming days if prices continue to rise.

In Our Portfolios...

What's New With Us?

For those of you who actively login to Morningstar to view portfolio performance information, there is a new-and-improved site that you should use moving forward. The new site is: fp.morningstar.com

This revamped Morningstar platform provides greater account detail, smoother navigation and a better overall interface. Let me know if you have any questions. It remains the place where monthly fee summaries will be posted.

Finally, happy belated Mother's Day to all you moms!

Brian E. Betz, CFP®
Principal